Home Equity Loan - Needing Referrals

[Claudio Garcia Zuniga]

In the works of pulling equity from my primary home, but I do not have any contacts on that. Not looking to refinance it. I am looking to buy an investment property with it, and any advice/guidance would be greatly appreciated. Currently worth 306K with a 234K mortgage. 

[Jason Wray]

Claudio,

A few things to consider when deciding on a Heloc versus a Cash out refinance on a primary home. A heloc can "never" be used as an Asset or for PITI reserves required when you buy investment properties. A heloc is an open end mortgage or in simple terms its a high risk credit line similar to a credit card that sits in 2nd lien position adding another trade line to your credit and reducing DTI.

Just like a credit card if you ever miss a payment on any debts on credit or if your scores drop unexpectedly they bank can close or reduce your line of credit. Only way to fix that is a cash out refinance to consolidate. Helocs must also be calculated in underwriting based on fully exhausted payment meaning even if you only use a portion during the next purchase they underwriter will hit you with the full payment for risk.

Cash out on the other hand is a liquid reserve tax free and it only requires (1) mortgage/lien. It can be used as an Assets and for PITI reserves. That makes your next purchase less risky due to higher reserves and the ability to earn interest on your cash if you put it in an interest bearing account until you need to use it which will counter the mortgage rate being higher.

You will also get a lower payment on a 30 year refinance versus a shot term line of credit usually around 10-15 years on a 9-12% rate versus a 6.75% to 7% with good credit. I would price out both Heloc and cash out refinance side by side to look at best options. Not to mention you can refinance in 12-24 months when rates are back down again.

Biggest take away is 85% of borrowers who take out a Heloc refinance it in 3-5 years to consolidate into one mortgage...

[Jay Hurst]

Quote from @Claudio Garcia Zuniga:

In the works of pulling equity from my primary home, but I do not have any contacts on that. Not looking to refinance it. I am looking to buy an investment property with it, and any advice/guidance would be greatly appreciated. Currently worth 306K with a 234K mortgage. 

@Claudio Garcia Zuniga Assuming this property is in Texas, state law will only allow you to pull 80% loan to value out of your primary home. So, using your numbers you could only borrow 244,800 (80% of 306k market value)m and if you owe 234,000 that would be less then 10K coming back you. Likely below any HELOC lender's min loan, but not worth you to do it even if they let you as the 10k would not be enough to really do anything with.